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Determining the Price of a Bond

Using E11.12 as an illustration.

Determining the Price of a Bond EXAMPLE 1 : Assume that Acropolis SA on January 1, 2020, issues 100,000 of 9% bonds, due in five years, with interest payable annually at year-end. Present value of 100,000 received in 5 years 64,993 (100,0000.6499) Present value of 9,000 received annually for 535,007 years (9,0003.88965) Market price of bonds 100,00 Determining the Price of a Bond E11.12 : Lorance SpA issued 400,000,7%,20-year bonds on January 1 , 2020 , for 360,727. This price resulted in an effective-interest rate of 8% on the bonds. Interest is payable annually on January 1 . Lorance uses the effective-interest method to amortize bond premium or discount. Present value of 400,000 received in 20 years (400,00085,800 0.2145) Present value of 28,000 received annually for 20 years 274,908 (28,0009.81815) Market price of bonds 360,70 8